Editor’s Note: This blog was originally published in September 2020 and has been updated as of 23 October 2020 to include changes to the IAWO.
The instant asset write off has been increased and extended. Do you know the benefits for your business?
The recent COVID-19 outbreaks here in Australia have meant that once again many Australians are finding themselves in a challenging business environment. Many are looking (or continuing to look) at the stimulus measures released by the Australian government, including an increased instant asset write off (IAWO).
But fully one-third of small and medium-sized businesses are totally unaware of the IAWO scheme. In fact, new research conducted by Honeycomb Strategy on behalf of SME lender OnDeck shows that 35% of SMEs haven’t even heard of IAWO.
However, the IAWO can be a boon to business owners. And of those that were aware of the scheme, nearly half (46%) said they are likely to take advantage of it.
So, what is the increased and extended instant asset write off scheme, and what are the benefits to you?
If you buy an asset for your business (such as a new computer or a second-hand fleet car), the IAWO lets you immediately write off that amount and claim it as a tax deduction. This hasn’t changed. But what has changed is the amount of that write off.
Where IAWO used to be capped at $30,000, in March 2020 it was increased to $150,000 in response to COVID. In both cases it was only permitted for businesses that had an annual turnover of less than $50 million. However, now those numbers have now been vastly expanded.
As of 6 October 2020, Treasurer Josh Frydenberg advised that all previous limits were being scrapped. For the next two years almost all Australian businesses will be able to write-off the full value of new assets purchased without any limits on the value of those individual purchases at all.
The government believes that this measure alone will support more than 3.5 million businesses. However, if one third aren’t aware of its availability, that’s nearly one million businesses that could miss out on the opportunity to save on tax and invest in the future. And we don’t want your business to be one of them.
When your business owns an asset that decreases in value over time, you are entitled to claim some depreciation on that asset each year. But with the IAWO scheme, you can claim the depreciation as a one-off lump sum instead of smaller tax deductions over the span of the asset’s life.
This can be a huge boost for your cash flow position. When you use this tax deduction, you can decrease your tax payable because you can reduce your taxable income by the amount you spend on your assets. This can cover tools, equipment, office furniture, air conditioners, work vehicles, computers and more, both new and second-hand.
It can also set you up for the future. Investing in assets that help you grow your business now, could future proof you against further economic downturns.
The IAWO scheme can be a huge benefit to business owners. However, most won’t have easy access to the large amounts of liquid cash needed to purchase those assets. If you’re like most business owners, you’ll need to obtain additional funding. In fact, 41% of survey respondents believed a small business loan would help them take advantage of the scheme.
With the year speeding by, it’s important not to put off taking the steps to obtain that funding. Getting the funding earlier will let you purchase the assets you need. You’ll be able to grow your business and get the benefits from the increased and extended IAWO scheme.
Buying a new asset for your business, and interested in the instant asset write off scheme? Get in touch. We’re standing by to help.
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